OECD warns of trade war threat to global economic rebound

An improved outlook for world economic growth will be placed at severe risk if a trade war results from US metal tariffs, a respected global forum has warned.

In its latest forecasts, the Organisation for Economic Cooperation and Development (OECD) raised its world growth expectations for both 2018 and 2019 to 3.9% - the highest since 2011 - from a previous estimate of 3.6%.

It said pre-Christmas tax cuts in the US , the world's largest economy, would account for much of the upgrade though it warned that protectionist policies were a big risk factor.

The OECD's acting chief economist Alvaro Pereira said any trade war resulting from US President Donald Trump's planned import duties on steel and aluminium products, would prove "fairly damaging".

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The report revised 0.4% higher its predictions for US growth - hitting 2.9% this year.

It said the eurozone would also grow by more than originally expected - at a rate of 2.3%.

But while it also revised slightly upwards its expectations for the UK economy - to growth of 1.3% during 2018 - it said Brexit uncertainty would continue to weigh on performance.

As the Chancellor prepared to update MPs (BSE: MPSLTD.BO - news) on the independent Office for Budget Responsibility's latest expectations for growth and borrowing, the OECD predicted the UK would see the slowest growth among the G20 economies this year, having largely outperformed rivals since the financial crisis.

It said rebounding business investment was the core reason for the expected acceleration in global growth - with trade rising 5% this year.

Mr Pereira told the Reuters news agency: "We think that the stronger economy is here to stay for the next couple years.

"We are getting back to more normal circumstances than what we've seen in the last 10 years."

On the likelihood of a backlash against Mr Trump's threatened tariffs, he added: "This could obviously threaten the recovery.

"Certainly we believe this is a significant risk, so we hope that it doesn't materialise because it would be fairly damaging."